Is It Insanity?

Is it insanity? Are moves like the one that LinkedIn (LNKD) is having today -- or Yelp (YELP), Zillow (Z) and Trulia (TRLA) had yesterday -- totally ridiculous and signs of extreme froth?

You could easily argue yes when it comes to the last ones because if housing is weakening, then these names are potentially way overvalued and, at a minimum, they should merge. They are total creatures of the housing market, and a weakened housing market is dreadful for them. They are heavily shorted for the exact same reason, however, and that's driving the stocks higher as they are part of a social/mobile/cloud trilogy that has everyone excited.

But Yelp has a terrific business model with ready-made content and tons of advertisers, and it could show profitability at a drop of the hat. And LinkedIn has 238 million members, which is a remarkable number of customers who can easily be monetized.

Of course, this whole rally started when Facebook (FB) showed how things can work out for mobile and how a ton of money can be made on it. Also, the short positions betting against Facebook were humongous, especially after Google's (GOOG) failure to blow out the numbers. And if you were short Facebook, you were probably short all these others because housing was getting weaker, LinkedIn missed last time and Yelp has competition from Facebook.

If you take away the shorts, all of these stocks will be lower. That said, they have been caught up in the cult of the Web right now, and until more supply is issued, they remain better to the long side. Don't worry , supply should hit soon, but the short side post-Facebook just made no sense, and that will continue to be the case as the analysts who had regarded all of these as shorts now have to change their minds -- a process which has just begun today.

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